"The Numerical Perspective"

"The Numerical Perspective"

Basics

It’s not easy to start a business, keeping it is even more of a challenge.

You have an idea, you make a plan, you have the capital to make them possible, you hire a team, you get employees, you have the customers and you have the proper goods. All these sound easy? No they’re not, especially if it’s your first time.

Let’s say you already have all these important factors at hand; so where do you go from there?

That’s what this article is about. We are going to tackle the basics of managing and documenting the money that goes in and out of your business.

Your PROFIT and LOSS

PROFIT: or MARGIN is the excess of the selling price of goods over cost

For now, we’ll start with the basic formulas you’ll be needing to keep track of your money.

A Gross Sales                   _ Refunds____________ Net Sales                       _ Cost of Goods Sold___ Gross Profit                   _ Operating Expenses___ Net Profit

B Beginning Inventory         + Purchases___________ Available Goods            _ Ending Inventory_______ Cost of Goods Sold

         I know what's on your mind. "What are those?!"

In any formula, it’s not about memorizing the form, it’s about knowing what to do with the variables you have to come up with the result. So here are the definitions to these variables.                
       

Formula A Variables

• Gross Sales- the sum you get from the goods you manage to sell. Meaning this already includes the mark-up.
• Refunds- this is the amount of the goods returned. So you have to thoroughly inspect the goods you order.
• Net Sales- now, this is what you get once you’ve subtracted the refunds from the gross sales.

                Wait! We’re not done. You still have to take note that your profit (Net Profit) is meant to recover the money you spent on your business, and refunds aren’t half of them. There are still:

• Cost of Goods Sold/Buying Price- the amount spent on buying  the goods and the production of these goods.
• Gross Profit- the amount left after deducting the COGS (Cost of Goods Sold) from the Net Sales.
• Operating Expenses/Overhead-  basically, miscellaneous expenses: employee wages, bills, rent, research expenses etc. you require to run your business.
• Net Sales- the amount you obtain after deducting everything that you’ve spent. The money that goes to you.

            Formula B additional Variable

• Inventory- is an itemized lists of goods on hand 
• Purchases- the amount you spent on the product other than the ones on your starting inventory.

I know, there are so much subtractions and deductions that it clenches your heart but I did say that it is challenging and hard... Or did I just say challenging? Now! Go back to the top of this page and check! Just joking. But, challenges are suppose to be hard, or they wouldn’t be what they are.

Now, I know you didn’t think to ask this question, but “How will you keep track of your COGS?” The COGS have its own set of variables. Those are the factors that you have to keep track of often. That is where the formula B comes in.

There are instances, however, when the sales are greater than the COGS. In this circumstance you have to use this format. Beginning Inventory        _ Purchases____________ Goods for Sale             + Ending Inventory______ Cost of Goods Sold

Here is a sample problem for you:

Ms. Hayden Tan had net sales mounting to ₱ 11, 345. The cost of goods sold was
 ₱ 3, 997.25. The operating expenses amounted to ₱ 2, 300.11. Find the net profit/net loss.

Information on this post is from discussions given by our professor.